Litigation: Challenging class certifications that alter the parties’ substantive rights as violations of due process

Defendants are (properly) accustomed to opposing class certification by attempting to show that there are many individualized issues—for example, as to causation of the alleged injuries or reliance on alleged misrepresentations—that common issues do not predominate and/or that a classwide trial would be unmanageable. The plaintiffs’ bar has responded by arguing that certain individualized issues need not be proven for all class members—in effect, redefining a cause of action to eliminate its traditional elements and thereby avoid individualized questions. But that shortcut to class certification raises serious constitutional concerns because it may violate a defendant’s due process right to present every available defense as to individual class members’ claims.

A case that illustrates the potential for these arguments is Philip Morris v. Scott. In Scott, plaintiffs sought to bring a class action on behalf of all Louisiana smokers alleging that a number of tobacco companies had defrauded class members about the addictive effects of nicotine. The class sought, and ultimately received after a trial, a judgment requiring the companies to pay more than $250 million to fund a 10-year smoking cessation program. Ordinarily, as a matter of Louisiana law, any individual who brings a fraud claim must prove that he or she “detrimentally relied on the defendant’s misrepresentations.” If that element were applied to each class member, it would be virtually impossible to certify a class because the issue of detrimental reliance would have to be addressed for each of millions of class members. But the Louisiana Court of Appeal dispensed with that requirement in Scott, instead holding “that this element need not be proved insofar as the class seeks payment into a fund that will benefit individual plaintiffs, since,” in the court’s view, “the defendants are guilty of a ‘distort[ion of] the entire body of public knowledge’ on which the ‘class as a whole’ has relied.” By assuming classwide reliance, the court of appeal not only “eliminated any need of plaintiffs to prove” but also denied any opportunity for” the defendants “to contest” at trial “that any particular plaintiff who benefits from the judgment (much less all of them) believed” the companies’ alleged “distortions and continued to smoke as a result.” The tobacco companies sought review by the U.S. Supreme Court, arguing that the lower court’s holding “violate[d] their due-process right to ‘an opportunity to present every available defense.’”

After months of considering the case, the Supreme Court declined to grant review. But there is no question that the case was a strong candidate for review; while the petition for certiorari was pending, Justice Scalia granted a stay of the judgment. Such stays are granted only when it is “significantly possible that the judgment below will be reversed.” And while the Supreme Court ultimately did not intervene, Justice Scalia’s opinion in support of the stay may provide future defendants with a road map for challenging class certification on due process grounds in response to plaintiffs’ contentions that individualized issues need not be proven for all class members. As Justice Scalia put it, “[t]he apparent consequence of the Court of Appeal’s holding is that individual plaintiffs who could not recover had they sued separately can recover only because their claims were aggregated with others’ through the procedural device of the class action.” And his opinion went on to say that “[t]he extent to which class treatment may constitutionally reduce the normal requirements of due process is an important question.” Foreshadowing a key theme of this article series, Justice Scalia explained: “National concern over abuse of the class-action device induced Congress to permit removal of most major class actions to federal court [under the Class Action Fairness Act], where they will be subject to the significant limitations of the Federal Rules.” But “this suit typifies the sort of major class action that often will not be removable, and in which the constraints of the Due Process Clause will be the only federal protection.”

All of this is to say that defendants should consider making similar due process arguments when facing state court class actions where plaintiffs seek to paper over elements of their claims that require individualized inquiries. The requirement that a party be permitted to present all available defenses is well supported by Supreme Court precedent.

And these arguments may draw further persuasive support from cases interpreting the Rules Enabling Act, which prohibits the use of the Federal Rules of Civil Procedure, including Rule 23, to “abridge, enlarge or modify any substantive right.” Defendants can and should consider arguing that the Act’s prohibition of the alteration of substantive rights is rooted in due process concerns. As the Eleventh Circuit has explained, “[t]he Rules Enabling Act . . .—and due process—prevents the use of class actions from abridging the substantive rights of any party.”

The Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes is particularly helpful authority. In Dukes, the court held that the Rules Enabling Act barred class certification in an employment-discrimination action because under the “Trial by Formula” approach endorsed by the district court, the employer would be prevented from litigating its statutory defenses to each class member’s claim for backpay. Specifically, the district court had indicated that it would appoint a special master to decide a sample set of claims, and that the percentage of claims determined to be valid would be extrapolated to decide the claims of the rest of the class. The Supreme Court rejected this “novel” approach because Wal-Mart would be prevented from “litigat[ing] its statutory defenses to individual claims.” That rationale, defendants can contend, applies in the due process context as well, and thus can be used to resist state court class certifications. (Of course, if the case is in federal court, the argument can be made under the Rules Enabling Act directly rather than (or in addition to) due process arguments.)